Part One of an Interview with John Brimelow

John Brimelow is an independent gold analyst from Connecticut; his writings on the subject appear at Le Métropole Café (lemetropolecafe.com). Kevin Michael Grace interviewed him September 13.

Q: Currently, there is a strong bias among investment advisers against junior resource companies as being too risky. Do you think this will change?

A: Obviously, it will ultimately, if the gold price keeps going up. The fact is that gold shares have been an astonishing disappointment over the past several years. They haven’t done badly in relation to the general stock market, but they have done very poorly in relation to [physical] gold. And the exploration stocks have done ever worse.

Q: Why?

A: It’s very tough to explain in a satisfactory way. Until recently, there haven’t been very many big takeovers, which changed a bit this summer. It’s also true that the cost of producing gold has risen very rapidly.

Q: But gold and junior resource companies actually produce new wealth. One would think this an important consideration today.

A: I think it’s a highly legitimate area for investment consideration. People do find mines. And if you can get into the cycle early enough, it’s a fortune maker. As the guys who own Red Back have just demonstrated. In the mid-1990s, there were tremendous amounts of money made in the junior mining sector. It’s true it’s not been easy to raise money for these projects. Again, the underperformance by the gold shares in general and the explorers in particular over the past four or five years has been a bit of a puzzle.

Q: As you say, investors in juniors have done well in the past. With gold hovering around $1,300 an ounce, how do you see the future?

A: Gold is now more or less at a level where it’s plausible to find viable gold mines. This is what happened in the mid-1990s. Gold was between $350 and $400 for about three years, which at the time was high. It was high enough to bring in some very successful gold mining operations, and that resulted in some extremely lucrative takeovers, so that the guys who followed the junior shares did extremely well. Investing in junior resource companies repays hard work, because keeping track of these juniors is hard.